Davidson Eliminates All Loans

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Davidson College is today announcing that it will change future financial aid packages so that students will no longer need to borrow anything.

While several elite private universities and flagship public universities have effectively eliminated loans for students from low-income backgrounds, these programs (except for the one at Princeton University, which applies to all) typically have income limits. Davidson would be out front of other liberal arts colleges, including some with much larger endowments.

The move comes at a time that many colleges are rethinking their aid and loan policies. Just last week, Hamilton College, for example, announced that it was eliminating all merit scholarships and shifting the funds to need-based aid. Among the reasons Hamilton cited was a belief that demographics in the years ahead would require greater support for need-based financial aid.

Demographic projections also influenced Davidson. "We are concerned by the faces not applying to Davidson because they don't believe that the college is affordable," said Christopher J. Gruber, vice president and dean of admissions and financial aid.

Gruber said that the college has noticed a shift in recent years among would-be applicants from the lowest income families. It used to be possible to get such students to apply, tell them about the availability of financial aid, and then at the time of admission explain how an aid package would make the college affordable, Gruber said. Then the admitted applicant would be comparing aid packages, and Davidson's was favorable, he said.

Now, he said, more would-be applicants -- when they hear about the costs (total for next year will be close to $41,000) -- are not applying at all, fearing that the only way they could end up with an aid package would be with one that had lots of loans.

"These students weren't even applying to us," Gruber said. Indeed the latest data posted about the college at the Economic Diversity of Colleges Web site shows relatively low figures at the college for low-income families and Pell Grant recipients.

Looking ahead, more students in the age cohort for a residential liberal arts education are going to come from low-income families, he said, so the college wanted to position itself for them. Davidson is already among a small group of private colleges with need-blind admissions, meaning that need for financial aid is not a factor in admissions decisions and it has a policy of meeting the full need of admitted applicants.

Notably, Davidson had already taken steps to limit loans. Last year, the college adopted a policy of limiting the loan component of aid packages to $3,000 a year. (The new policy cut student debt over four years by $7,000. Previously, loan limits started at $4,000 for freshmen, going up $500 a year, so that after four years students graduated with $19,000 in debt.) While the decision to eliminate loans completely will cost the college an additional $3.5 million, Gruber said it was worth it to take loans out of the equation entirely.

Gruber said that he thought there was a chance other liberal arts colleges might match the policy, and that it would be "beautiful" if that happened.

One aid expert, asked about the shift, questioned whether it made sense to completely eliminate loans, when some students and their families could afford modest loans.

But an economist of higher education said he saw the logic to the move. Michael McPherson, president of the Spencer Foundation and former president of Macalester College, said that many private colleges these days focus on "how to get more paying applicants," so it is commendable for a college to be thinking about ways to get more low-income students.

McPherson said there is evidence that a very simple message can have a big impact. In 2004, Harvard University announced that it was eliminating all expected contributions from the families of students with family incomes of up to $40,000 (a level since increased to $60,000 ). When the university adopted its policy, it saw an immediate increase in the proportion of new students from low-income families.

Before Harvard had its new policy, it was also giving very generous aid packages to students in this group, probably identically good, McPherson said, but applicants responded to the simplicity of the revised policy. "Anyone could have seen that if you got into Harvard, you would be able to afford it, but it seems true that when they publicly stated in a new way what they were already doing, they got a lot more of these applicants," McPherson said.

A straightforward message "can be effective," he said.

Robert F. Vagt, Davidson's president, said it was also important to send a message to those who enroll about their post-graduation options. In the last year, he said, he has heard from at least six seniors who told him that they wanted to be teachers or work for a nonprofit group or take some socially valuable, but financially not so lucrative, job. "They are telling me, 'I can't afford to do that,' " Vagt said. "Debt is affecting students' choice of careers," he said.

By combining the need to attract low-income students with the goal of encouraging all students to consider service-oriented jobs, Vagt said, "this is the right thing to do."